Why Michael Peevey Wants To Stick With State PUC

CPUC President Michael Peevey has become a focal point for public anger over last year’s fatal pipeline explosion in San Bruno. Critics have urged Gov. Jerry Brown to replace him, saying he and the powerful commission he has run for eight years have grown too cozy with the companies they regulate, but Peevey says he still has unfinished business on the panel,

Michael Peevey isn’t going anywhere. Not just yet.

The president of the California Public Utilities Commission, Peevey has become a focal point for public anger over last year’s fatal pipeline explosion in San Bruno. Critics have urged Gov. Jerry Brown to replace him, saying he and the commission he has run for eight years have grown too cozy with the companies they regulate. Those companies include Pacific Gas and Electric Co., owner of the San Bruno pipeline.

But Brown hasn’t replaced him.

The Democratic governor appointed two new members to the five-person commission last week but kept Peevey in charge. The panel has one more opening, so Brown could still name a new commission president if he chooses.

Peevey’s six-year term expires in 2014. He hints that he may not want to stay that long. At age 72, he says he’d enjoy spending more time at home in La Cañada Flintridge (Los Angeles County) with his wife, state Sen. Carol Liu.

But for now, Peevey says he still has unfinished business on the panel, especially in San Bruno.

"I feel a responsibility to see this through," he said.

Peevey, who can be courtly or combative depending on the situation, also argues that many of the commission’s critics are flat-out wrong.

The commission is perfectly willing to get tough with utilities when warranted, he says. Peevey himself was harshly critical of Pacific Gas and Electric Co. last year for pushing a ballot measure that would have limited the ability of local governments to enter the public power business.

Limited Resources

But the commission also needs the utilities’ cooperation. With a staff of roughly 1,000, he said, the commission doesn’t have the resources to micromanage the companies, nor should it try to.

"Good regulation is not just beating someone over the head," Peevey said. "I’m quite willing to use the stick, but I also use the carrot. Ultimately, you have to have the cooperation of the utilities in order to meet the energy goals the state sets."

Critics say they rarely see Peevey use the stick. They often cite Peevey’s history as a former president of Southern California Edison, the state’s second-largest utility, to explain what they consider his lenient attitude toward the companies.

"You have people coming from the utility industry, then turning around and regulating the utilities," said state Assemblyman Jerry Hill, D-San Mateo, who represents San Bruno. "We’ve had almost weekly revelations of what I’d call the inept approach to regulating PG&E."

Peevey also has his supporters.

Under his leadership, they say, the commission has adopted cutting-edge policies that promote energy efficiency and combat climate change. While the commission is best known for setting electricity and natural gas rates, it has also become the instrument through which the state pursues many of its long-term energy goals, such as increasing the use of renewable power by utilities and homeowners alike. And Peevey has been a passionate backer of those goals, supporters say.

"He is a titan in California in the energy space, and we’re all glad that he is where he is," said K.R. Sridhar, chief executive officer of Bloom Energy, a fuel-cell company in Sunnyvale.

Peevey’s fans also credit him with helping stabilize California’s energy markets after the electricity crisis of 2000 and 2001, when rolling blackouts swept the state.

"I have the utmost respect for Michael Peevey," said Joe Desmond, former chairman of the California Energy Commission. "The results speak for themselves. …Did we make progress on increasing renewables? Yes. Have the lights stayed on? Yes."

Indeed, cleaning up the messy aftermath of the crisis was one of Peevey’s main tasks when Gov. Gray Davis appointed him to the commission in March 2002.

Peevey, a San Francisco native and UC Berkeley graduate, had already served as an energy adviser to Davis in early 2001, helping the Democratic governor draft financial rescue plans for Edison and PG&E as the crisis pushed both toward bankruptcy.

Peevey’s resume, criticized by his detractors, was one of the main reasons Davis picked him. In addition to his years at Edison, Peevey had also run NewEnergy Inc., an energy provider that competed against the utilities during the state’s experiment with electricity market deregulation.

"I’d spent years in the trenches of energy," Peevey said. "It’s not ideological. It’s knowing how the system operates."

His appointment provoked howls of protests from consumer groups. They were further incensed when Davis elevated Peevey to the commission’s presidency in December 2002, replacing Loretta Lynch.

Lynch had taken a confrontational approach to energy companies during the crisis, at one point exploring the possibility of seizing a power plant and finding retired utility workers to run it.

Under Peevey’s direction, the commission’s attitude toward the utilities became more collaborative and collegial.

Too Lenient?

Consumer advocates grumbled that the commission grew too lenient, especially on the utilities’ requests to raise natural gas and electricity rates. PG&E’s average residential electricity rate, for example, is now 28 percent higher than it was during the crisis.

At the same time, the commission became one of the lead state agencies in the fight against global warming.

The commission runs the state program that gives homeowners rebates for installing solar systems. It enforces the state law that now requires the utilities to get 20 percent of their electricity from renewable sources (a level they still haven’t reached). In 2007, the commission passed a rule that effectively blocked the utilities from buying power from coal-burning plants.

The commission’s environmental record gives some of Peevey’s critics mixed feelings.

"He’s shown a great deal of concern for the environment, and that’s very positive," said Mark Toney, executive director of The Utility Reform Network, a watchdog group. "But from a ratepayer’s perspective, he’s really given away the store to the utilities."

The tenor of the commission may soon change. One of the two people who joined the commission last week is a longtime attorney with Toney’s organization, Mike Florio. His appointment was widely seen as a move by Brown to push the commission in a more consumer-oriented direction.

San Bruno Blast

In addition, an independent panel appointed by the commission to investigate the San Bruno explosion may suggest changes to the way the commission operates. Peevey specifically asked the panel to determine whether systemic flaws within the commission, and within PG&E, led to the tragedy.

For example, the commission has come under fire for not fining the utilities when they report violations of natural gas pipeline safety rules.

"I am willing to change that," Peevey said. "But I want independent eyes—not my own, not our staff—to tell me that’s the right thing to do."

This article appeared on page D—1 of the San Francisco Chronicle